Innovative companies are (internally) able to generate competitive advantages that leads to a temporary monopoly with monopoly profits. Open source is one of many feasible models that enable companies to harness their technology in the spirit of open innovation. (What is the difference between Open source and Open Innovation). The basic idea is to jointly develop new technologies and share the rights to make use of it. Essentially, there are four open source strategies that can be differentiated with respect to company’s situation and aims: Pooled R&D, spinouts, selling complements, donated complements[1]. Open source was especially related to software and computer science, however it has impacted many industries (Tesla is an example of non-computer open source company). Although patent open source can put an end to patent trolls, encourage innovation and development, encourage the usage and exchange of knowledge from variety of people and companies, it poses certain risks. It can for example such undermine strategic competitiveness. Since 2005, Tesla has been developing electric cars, and managed to become one of the most successful clean energy companies. Tesla has been able to attract a steady stream of money flow, even rushing to a market capitalization of around $200 billion, the largest market capitalization of any global automotive company. While company’s success comes from variety of factors (business strategy, profit, R&D, innovation), it is Tesla’s patent open-source oriented corporate business strategy as well as its Cross-Functional Combination model, what makes company pretty unique and enables it to thrive.

Traditionally, Tesla had professed to take a strict approach to the protection of intellectual property. In 2012, the company observed: ‘Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.’2 Tesla warned:

‘’Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. We have also received from third parties patent licenses related to manufacturing our vehicles. Our proprietary technology includes cooling systems, safety systems, charge balancing systems, battery engineering for vibration and environmental durability, customized motor design and the software and electronics management systems necessary to manage battery and vehicle performance under demanding real-life driving conditions. These technology innovations have resulted in an extensive intellectual property portfolio.[2]

The strategy of the company was to rely upon a combination of patent law, and other intellectual property rights, to protect the core technologies of the company. In terms of the powertrain, Tesla focused on the core intellectual property of four components – the advanced battery pack, the power electronics module, the high efficiency motor and the electronic control software[3]. A key strategy that Tesla adopted was that the battery pack could accommodate different battery cell chemistries and was designed to allow for multiple suppliers. Tesla argues its integration of these components is more valuable than the sum of parts and is therefore a core competency providing the company with competitive advantage.[4]

Regarding patent protection Tesla recognized that

a) the costs of enforcing patens, confidentiality agreements and other intellectual property rights may make aggressive enforcement impracticable. One of the concerns regarding patent system are the time consuming and costly patent wars in which companies invest a lot of their resources, instead of focusing and developing R&D.

b) competitors may independently develop similar technology and design vehicles in way in which they can circumvent their patents.

c) patents granted can be invalidated because of the pre-existence of similar patented or unpatented intellectual property rights.[5]

PATENTS

Patents are an exclusive monopoly right granted by law to innovators and are a mean of promoting economic development and enhancing the strategic competitiveness of enterprise. Patents enable knowledge trading, by disclosing information, which allows technology sellers to signal their products’ value, while at the same time protecting them from free-riding by competitors and technology buyers. Strong and patents of good quality enable more licensing transactions and may help the transfer of tacit knowledge. More so, they encourage competition. Patents represent a credible threat to block malfunctioning partnership, and their quality-quantity ratio determines the bargaing power of each actor.

However, individuals or enterprises outside of the patent owner’s ownership that wish to apply a patent generally have to go through complicate and lengthy negotiation process and obtain a patent license. This can lead to the slow development of the conversion and industrialization of patented technologies, which hinder the transfer and implementation of innovations, and give rise to problems in the patenting of existing technologies.” [6]Another downside, beside cost and time of patent system is disclosing of information, which can in some cases give valuable information’s to competitors, which in turn can make certain changes and circumvent the patent. [7]

 In 2014 Tesla shifted  towards open source philosophy.(What is the difference between Open source and Open Innovation)   As of 2019, Tesla has completed open-sourcing all of its patents. As the common code of open source, Tesla also adheres to GPL compliance principles, upload its in-vehicle system program’s source code in 2018 to Github, a hosting platform for open source and private software projects. Tesla also uses its own patents to open several large and potential patent pools for free use by itself and the industry, which is in line with the Tesla’s vision of creating a “shared, rapidly evolving technology platform”. ‘’Although patent users don’t have to pay for Tesla’s patents, they are tied to Tesla’s technology platform firmly, while Tesla cannot be sued on any intellectual property grounds, nor trademark infringement or trade secret violation.’’ [8] Tesla Motors did not abandon intellectual company entirely; it has only offered access for ‘good faith’ uses of its patents.

PATENT OPEN SOURCE

Patent open source, developed from the sharing of goods and software open source, is undoubtedly the most powerful support for technology sharing. While open source encourages innovation and development, it also protects the intellectual property rights of original creators with legally binding agreements. Others are able to learn and apply these patents and rely on them to develop new products under the constraints of relevant agreements and rules, and no need to go through the lengthy process of patent licensing and negotiation.

Patent open source enhances Tesla’s goodwill, stabilizes investors’ confidence, ensures the continuity of corporate cash flow, and ensures that up sales of their own electric cars.[9]

However, high-tech enterprises belonging to same patent alliance often build patent pools or clusters together so that they can learn from each other and improve overall strategic competitiveness. Tesla neither joins any patent alliance nor holds as many patents as traditional car companies like Toyota, who has had over 20,000 patents related to all kinds of new energy vehicles, thus it needs to maintain technical advantage in the battery, motor and electronic control and other electric vehicle core technology areas at all times, and through the continuous iteration of technology research and development updates, step by step to push up the industry’s technical threshold and ultimate. Tesla has had a significant technological advantage, but its competition is catching up and independently developing similar products.[10] Tesla enforced its reputation by going open source, however the technology and patents that has been invested heavily in R&D cannot be directly transformed into capital flows through patent licensing.

CONCLUSTION

Patent open source has more emphasis on technology sharing, eliminating the cumbersome process of patent negotiation and licensing, greatly facilitating the application of patented technologies, then traditional IP protections. It attracts large-scale participants and promote other peers to choose it, which helps to promote the healthy development of the industry. As seen in the case of Tesla, patent open source can be an important part of a company’s business strategy and have a positive impact on the company. While many companies are open-sourcing their patents, there are certain problems and concerns regarding open source strategy. The extension of patent open source to other high-tech industries often needs to be discussed with the actual business strategy, so that the value of patent open source can be clearly recognized. It is also important that company has a strong, quality patent when deciding to open source them.


[1] Chesbrough, H., Vanhaverbeke W., West J,: “Open Innovation –

Researching a New Paradigm”, Oxford University Press, New York,

2006.

[2] Tesla Motors (2012) Annual report for the fiscal period. http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-13-96241&CIK=1318605.

[3] Tesla Motors Inc. 2011. Annual Report 2011, SEC Form 10-K. : http://ir.

tesla.com/

[4] Evanson, J. 2013. Tesla motors investor presentation Autumn 2013. Available from URL: http://ir.

tesla.com/

[5] Tesla Motors (2012) Annual report for the fiscal period ended December 31, 2012 http://ir.

teslamotors.com/secfiling.cfm?filingID=1193125-13-96241&CIK=1318605

[6] Musk E (2014) All our patents belong to you. Tesla Motors, 12 June. http://www.teslamotors.com/

blog/all-our-patent-are-belong-you.

[7] Musk E (2014) All our patents belong to you. Tesla Motors, 12 June. http://www.teslamotors.com/

blog/all-our-patent-are-belong-you.

[8] [8] Wang, J., & Peng, X. (2020). A Study of Patent Open Source Strategies Based on Open Innovation: The Case of Tesla. Open Journal of Social Sciences8(07), 386. https://www.scirp.org/html/31-1763645_101900.htm

[9] Ibid,.

[10] Wang, J., & Peng, X. (2020). A Study of Patent Open Source Strategies Based on Open Innovation: The Case of Tesla. Open Journal of Social Sciences8(07), 386.